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From Parts to Products: Why Trade Logistics Matter

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Take a close look at your smart phone for a moment. What do you see? A glass screen. A button equipped with fingerprint recognition. A camera lens, flashlight, microphone, and speaker. Each of these components, and others – including chips, processors, batteries – are independently sourced from companies located all over the world and assembled into a finished product at factories, often in China. Any smart phone you purchase, and its components, has likely passed through customs several times, landed on multiple countries and continents, and been touched by countless workers.

Logistics makes all this possible. A $4.3 trillion industry affecting nearly every country in the world, logistics is the network of services that supports the physical movement of goods within and across borders. It comprises an array of activities including transportation, warehousing, brokerage, express delivery, terminal operations, and even data and information management. How efficiently goods can move through these systems to their final destinations is a key determinant to a country’s trade opportunities.

“Logistics are the backbone of global trade,” notes Caroline Freund, Director, Macroeconomics, Trade & Investment Global Practice at the World Bank Group. “As supply chains become more globally dispersed, the quality of a country’s logistics services can determine whether or not it can participate in the global economy.”

Benchmarking Logistics Performance

With trade and logistics touching so many areas of an economy, it can be difficult to get a complete picture of a country’s performance. This is why the Logistics Performance Index (LPI), part of the biennial report Connecting to Compete, evaluates countries across a number of indicators. The index, which takes into account factors such as including logistics competence and skills, the quality of trade-related infrastructure, the price of international shipments, and the frequency with which shipments reach their destination on time, helps governments benchmark their progress over time and in comparison to similar countries.

Utilizing surveys of logistics professionals, the LPI offers two perspectives on a country’s performance:

The domestic LPI offers quantitative and qualitative assessments of a country’s services from logistics professionals working inside the country. This component offers detailed information on a country’s infrastructure, quality of service providers, border procedures, and supply chain reliability.

The international LPI provides evaluations of a country’s services by logistics professionals located outside the country. This component provides qualitative information of how a country’s trading partners perceive the efficiency and quality of its logistics services.

The World Bank Group has been scoring countries on these issues every two years since the inaugural edition of Connecting to Compete in 2007. Consistently, high-income countries, particularly those in Western Europe, emerge as world leaders on logistics. In fact, the LPI score of high-income countries is 48% higher, on average, than low-income countries. Among the 30 top performing countries, 24 are members of the Organization for Economic Co-operation and Development (OECD).

“Across the board, we have seen most countries investing in logistics-related reforms, especially in the areas of building infrastructure and facilitating trade,” explains Jean Francois-Arvis, Economist at the World Bank Group and report co-author. “Despite these efforts to modernize services, developing countries face many remaining challenges. This explains a persistent gap between high- and low-income countries in terms of logistics performance.”

But income alone is not the sole determinant of a country’s LPI score. Vietnam, Thailand, Rwanda, China and India all outperform their income groups.  These countries tend to have access to sea ports or large international transportation hubs.

For individual countries, logistics performance is key to their economic growth and competitiveness. Inefficient logistics raise the cost of doing business and reduce the potential for integration with global value chains. The toll can be particularly heavy for developing countries trying to compete in the global marketplace. Governments can use the LPI to better understand the link between logistics, trade, and growth, and what policies they can enact to globally compete.

2018 LPI: Key Findings

The top 10 performing countries have remained relatively unchanged over the past few years and tend to include high-income countries in Europe. Of the top 30 performers, 24 are members of the OECD.

The bottom 10 countries in the ranking are composed of mostly low-income and lower-middle-income countries. These are either fragile economies affected by armed conflict, natural disasters, political unrest, or landlocked countries that are naturally challenged by geography or economies of scale in connecting to global supply chains.

The LPI scores of high-income countries, on average, surpass low-income countries by 48 percent.

Among the lower-middle-income group countries, large economies such as India and Indonesia and emerging economies such as Vietnam and Cote d’Ivoire stand out as top performers. Most of these countries either have access to the sea or are located close to major transportation hubs.

There is currently a labor shortage of logistics professionals in both developed and developing countries. Developed countries need more blue-collar workers, such as truck drivers, while developing countries seek more managerial-level workers.

More countries perceive cybersecurity threats a risk to logistics. However, while 78% of high-income countries have increased their preparedness, only 26% of low-income countries have done so.

Given that 23% of all energy-related CO2 emissions can be attributed to transport, the environmental sustainability of logistics is an important emerging trend. Strong performers in logistics are the most likely to seek eco-friendly shipping options. In the top quintile of LPI performers, 28% of respondents indicated that shippers often or nearly always ask for environmentally friendly shipping options. In the bottom quintile, this percentage falls to just 5%.

World Bank

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Anglo-American Axis Needs Common Market, not Common Alliance

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With the eruption of the war in Ukraine, and considering the post-war situation, the alliance system in the West and its future should be something worthy of concern.

Anglo-American Axis is a concept that I proposed well before Brexit, and such an axis has already been fully formed today. With Brexit, the United Kingdom is now no longer part of the continental European alliance. It has instead re-aligned with the United States, and reverted to being a maritime nation that it used to be.

Such an axis would not be moved by the independence inclination of France, the wish of Germany to become the leader, nor the ambition of Turkey to be a regional hegemon. It cares even less about countries like Israel, Iran, and India. What the Anglo-American Axis focuses is to control the high ground of fundamental values, so that it can win the historic future as long as civilization continues to progress. Wars in other regions do not carry much significance to it. For NATO to play a role, it must negotiate conditions with the United States. It is not the Anglo-American Axis that needs NATO, but that NATO needs the Anglo-American Axis.

The United States, Canada, Australia, and New Zealand, the former members of the Commonwealth, have formed the largest single market in the world, with a coordinated monetary policy for the U.S. dollar and British pound. Such a market can consider certain African and South American countries, as long as they remain stable, and this usually means some “friendly dictatorships with open economies”, similar to Chile in the past.

Civilization is a dynamic force. Although many have studied monetary issues and finance, they fail to link these with civilization. In fact, these are appendages of civilization, and they are products of it. Humanity will inevitably move towards civilization.

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What are Market Anticipations and Policy Expectations as Shares Tumble?

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On April 21st, the three major A-shares indices saw a severe drop due to a combination of local and global causes. The Shanghai Composite Index dropped 2.26%, the Shenzhen Component Index dropped 2.7%, the ChiNext Index dropped 2.17%, and the CSI 300 Index dropped 1.84%. More than 4,400 stocks fell in both cities, while industrial categories led by tourism, fertilizer, agriculture, and photovoltaics almost across the board.

As April started, the Shanghai Composite Index has fallen 7.5%, down 10.5% from the beginning of March. The CSI 300 Index has dropped 13.40% from 4,614 in early March to the current 3,995.83, which tumbled 21.31% from 5,078 in mid-December last year. Because incremental funds were not injected into the market anymore, only stock funds were up for grab. Since the middle of March, A-shares stock trading has been declining, indicating a lack of investor trust.

Researchers at ANBOUND believe that this demonstrates the market’s pessimism about the future economic situation. With the downward pressure on the economy increasing, market confidence restoration and expectations stabilization are critical to helping in the healthy development of the capital market, as well as important in maintaining growth and averting risks.

Figure 1: The Shenzhen Component Index plunging more than 4,200 in the past 4 months

Source: Sina Finance

Market institutions have generally accepted the several factors that have caused the recent severe falls in the stock market. First, the worldwide geopolitical risk of distorting the supply chain and affecting company earnings is rather high. Second, since the Federal Reserve has escalated monetary tightening, the quick reduction of the interest rate gap between China and the U.S., as well as the inversion of the RMB exchange rate, is driving the RMB exchange rate to alter, raising concerns about capital flows. Next, the resurgence of the domestic pandemic has a substantial negative influence on China’s economy, particularly in consumption and real estate as indicated in the first-quarter economic statistics, which has heightened concerns about the country’s macroeconomy. Finally, the pessimism has been accentuated by a substantial disparity between recent central bank macro policy actions and market policy expectations. As a result, as long as present internal and external concerns persist, the A-shares market is unlikely to improve much in the immediate term.

Figure 2: The Shanghai Composite Index shedding more than 600 in the past 4 months

Source: Sina Finance

Historically, the fluctuations and transformation of China’s stock market couldn’t fully reflect China’s overall economic situation. However, in terms of expectations, the shifting trend of the A-share market, by acting as a barometer of the economy, continues to illustrate the genuine expectations of capital market investors on future business and overall economic developments. As observed in the March market trend, changes in external variables have been absorbed, but recent stock market volatility is more likely to be aggravated by changes in internal elements. As a result, changes in China’s economic circumstances and policy expectations are undoubtedly the cause of the stock market’s dramatic volatility. Investors are increasingly concerned about the negative economic impact of the COVID-19 outbreaks, as well as a lack of trust in the stability of present economic strength and the rhythm of macroeconomic measures that sustain the economy. As things stand, despite the continued implementation of measures and policies aimed at stabilizing the capital market, these policies are insufficient to boost market confidence.

The pandemic and policy declarations are not only harming the capital market but are also major variables influencing China’s economic future. Notably, the recurrence of COVID-19 is concentrated in those economically developed regions such as the Yangtze River Delta and the Pearl River Delta. The scope and depth of its economic impact may surpass that of the outbreak in Wuhan in 2020. In such a case, we believe that there is a demand to put dedicated unconventional policies into place. In this regard, it is necessary to implement targeted measures to stabilize economic fundamentals based on strengthening prevention and control. On the other hand, it is also essential to promote systematic easing among macro policies to avoid the catastrophic consequences caused by shrinking demand.

Since the beginning of the year, in the framework of the Chinese central bank’s monetary policy implementation process, it has taken a cautious approach to progressively easing, which is far from the policy expectation. Although the central bank has maintained “reasonably ample liquidity” as a whole, the reality of the domestic economy indicates the private economy and a large number of small and medium-sized enterprises are unable to obtain sufficient credit support from those “accurate liquidity provisions”. Such economic structural difference requires not only targeted structural reforms, but also overall easing to achieve the dredging effect from “loose money” to “loose credit”, which would reverse the passive situation. Zhang Jun of Morgan Stanley Securities also pointed out that the policy-level “fueling tactics” will cause a waste of policy space and may also deepen the risk to diminish the expectations.

Concerning the present external limitations that limit China’s domestic measures, ANBOUND has previously stated that variables such as interest rate spreads produced by economic and policy disparities are only one of the external factors impacting China’s economy, but not the most important one. Further concern should now be given to the fundamental factors that drive economic growth and structural improvement. In terms of policy, it is imperative to enhance the ‘autonomy’ of macro policies. We should occupy this window, fundamentally reverse the economic trend, and assist the capital market to construct stable market expectations and policy expectations before the international situation undergoes further evolution, hence coping with a better response to the changes in external factors.

It would be difficult to reverse the situation after market expectations have shifted. When combined with a self-reinforcing impact, it frequently leads to a downward spiral vicious cycle in the capital market and the actual economy. Hence, it is hard to reverse market expectations without stable policy expectations. Judging from the economic data of the first quarter, the overall economy is still resilient and possesses a stable foundation. However, to achieve the economic growth target of the current year, it is still necessary to strengthen the implementation of macro policies. This is not only conducive to the stability of the capital market but for the overall economy as well.

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Economy

Education Must Come First in our Global Economic Agenda

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A 13-year-old girl solves a maths sum at a school in Gujarat, India. © UNICEF/Mithila Jariwala

With leaders gathering at this year’s World Economic Forum, it’s time to prioritize the impact investments in education bring to businesses, economies and beyond.

As all eyes turn to this week’s World Economic Forum in Davos, we call on world leaders and world-leading businesses to put education at the heart our global social and economic agenda.

Education is our investment in the future, our investment in sustainable economic growth and global security, our investment in the vast potential of our collective humanity.

To realize our goals of delivering equitable, quality education to every girl and boy on the planet – especially those caught in armed conflicts, forced displacement and other protracted crises –  we must activate a global conscience and commitment, and create a value proposition that shows businesses, politicians and the general public just what an investment in quality education means for our world.

This means pre-schoolers can learn to read and write in safe environments. It means girls can become entrepreneurs and doctors – not child brides. It means boys can be teachers and lawyers – not soldiers.

It means refugee children and adolescents displaced by conflict, climate change and other crises in hot spots like Bangladesh, Colombia, the Sahel and Ukraine can go on to complete 12 years of education and become leaders of a peaceful and healthy society.

It means college and beyond, a smarter workforce, and greater socio-economic stability. It means an end to poverty and hunger, establishing gender-equality, and advancing human rights for all.  

Unravelling the challenge

This is one of the most complex problems ever to face humanity. When Education Cannot Wait (ECW) – the UN’s global fund for education in emergencies and protracted crises – was established in 2016, an estimated 75 million crisis-impacted children and youth did not have access to the safety, protection, hope and opportunity of a quality education. That number has risen to an estimated 200 million in recent years as we see a rise in conflicts, displacement, climate disasters and a deadly pandemic that has upended our progress to achieve the Sustainable Development Goals by 2030.

While a minority of people on the planet are enjoying all the comforts of modern life – and football teams sell for more than $5 billion – over 617 million children and adolescents worldwide cannot read or do basic math. That’s more than the total population of ECW’s three largest donors – Germany, the United Kingdom and the United States – combined. 

Nevertheless, to date, less than 3% of government stimulus packages have been allocated to education, and in low- and lower-middle-income countries, the share is less than 1%. We can and must increase this government funding three-fold, following the example of the European Union, which announced in 2019 that it would increase education spending to 10% of humanitarian aid.

Government aid alone isn’t enough

The private sector, businesses and philanthropic foundations like The LEGO Foundation, Dubai Cares, Verizon and Porticus are already activating significant investments into the space.

We need to bring in more funding from industries closely connected with education – like Google, CISCO and Microsoft – and from those which have a vested interest in ensuring global economic stability and resilience, like the Jacobs Foundation, Western Union and Hilton Foundations of this world.

As we embrace the spirit of Davos – “to demonstrate entrepreneurship in the global public interest while upholding the highest standards of governance” – it is clear that this is a global issue that won’t just impact the rights and life trajectories of the world’s most vulnerable children, it will impact the bottom line for businesses, disrupt global socio-economic stability, and affect us all if we don’t act immediately with decisive action and collective humanity at the forefront. 

Building together

Education Cannot Wait has already mobilized over US$1 billion over a few short years and reached approximately 5 million children, but it is simply not enough.  

In the next three years, with the support of donors, the private sector, philanthropic foundations and individuals, we need to mobilize at least an additional $1.5 billion. This needs to happen with the leadership of the G7, the resources and know-how of the private sector partners featured at this year’s World Economic Forum, and the enhanced commitments that will make headlines at this year’s Transforming Education Summit, convened by the UN Secretary-General.

This will enable ECW and our strategic partners to respond immediately and effectively to the education needs of at least 10 million children and adolescents – including 6 million girls.

Think about the ROI. This works out to just $150 per child. If each of the world’s Fortune 500 companies made just a US$15 million contribution, we could surpass our goals and reach 100,000 children per donation! That’s 50 million more children with an education, 50 million more children breaking the hunger and poverty barriers, 50 million more opportunities to provide certainty in the face of very uncertain economic times.

Think about the future. If you could future-proof your business for the next 30 years with such a simple investment, wouldn’t you do it? Investment in education is good for the bottom line. With increased security and economic opportunity in the Global South, we are opening new markets, increasing economic resilience and building a more prosperous world.

Think about the legacy. For every $1 spent on girls’ education, we generate approximately $2.80 in return. Making sure girls finish secondary education could boost the GDP of developing countries by 10% over the next decade.

Think about scale. For every dollar raised, ECW and our strategic partners are leveraging about a dollar. This grows impact exponentially.

Think about our place in history. This is our moment to transform education for those left furthest behind. Please join us in ensuring every girl and boy – no matter who or where they are – has the opportunity to go school, to learn, to grow and to achieve their potentials not just for a day, but for a lifetime.

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